Thursday, February 1, 2018

Bitcoin Wallets

Bitcoin Wallets

First, the internet revolution made our mail boxes obsolete to the point to which millennials don’t even know how to send letters anymore. Now, the same thing is happening to our money, hence to our wallets. This page will help our readers keep up with Bitcoin wallet technology. So before you set up a Bitcoin wallet, here is a short guide of what it is, how it works and how to keep it safe from cyber criminals.

A Bitcoin wallet is, like the name says, a place to put your Bitcoins. The peculiarity of these wallets is that unlike a physical wallet that holds your credit cards and cash, Bitcoin wallets behave more like bank accounts than wallets. There are basically two kinds of wallets: the software wallet, which you set up on your computer or mobile device, and the web wallet which is hosted by a third party. The software based wallet may not be as straight forward to install and maintain, although it allows you to keep complete control over the security of your coins. The web based wallet is easier to use but requires you to trust the third party keeping your coins in their cyber vault.

What are the Risks?

There are inherent risks in using Bitcoin wallets, especially when these are connected to the internet. That is why many of these wallets can store your coins offline and go online only when you want to make a transaction. This is the basis of the distinction between a hot (online) wallet and a cold (offline) wallet. Bitcoin transfers can be made using cold or hot wallets.

To understand how this works, it is necessary to take a step back and understand what a single coin is made of. A Bitcoin is composed of two parts: a public address and a matching private key or code. Each of these couples have a unique identity. Possession of a given Bitcoin is determined by matching the public address to its specific private key. The public address and the private key or code are basically lines of data that should match uniquely.

Your wallet will essentially contain the private keys, so as long as those are in your possession, the coins are yours. This is why cold storage is so important. Keeping those keys hot, or online at all times, could be tantamount to walking down the street with a pile of cash in your hand. When you are ready to make a transaction, you can go online (hot) and do it over the internet, or you can stay offline (cold) and give or deliver the private keys to the person or entity you are doing business with. Some wallets will even allow you to hold your coins inside a disk on key-like device that will only go hot once you plug it into a computer.